Expecting federal windfall, cities buy nursing homes

Kay Stokes pushes her husband, Roger, in a wheelchair outside of Grace Living Center in Oklahoma City on Sept. 13. (Whitney Bryen / Oklahoma Watch)

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(Editor’s note: This story was authored by Paul Monies of Oklahoma Watch and appears here in accordance with the non-profit journalism organization’s republishing terms.)

A handful of small Oklahoma cities have become owners of dozens of Oklahoma nursing homes across the state in the past 15 months, hoping to tap into a federal program that will bring them millions of dollars.

The cities, which include Pauls Valley and Hugo, don’t actually manage the day-to-day operations of the nursing homes. But they hold the licenses to operate the homes and sign management agreements, usually with the nursing homes’ prior owners.

Pauls Valley now holds licenses for 28 nursing homes across the state, including homes as far away as Tulsa, Enid and Okmulgee. Hugo owns 12 nursing homes, including in Shawnee and Muskogee. In all, licenses for 46 nursing homes are now owned by cities or towns, which also include Frederick, Medford and Vici, according to a review of licenses filed with the Oklahoma State Department of Health. One of the homes owned by Pauls Valley, located in Wynnewood, closed in November 2017.

The cities are pinning their hopes on the state’s latest application for a federal bonus payment program offered through the federal Centers for Medicare and Medicaid Services (CMS). The Nursing Facility Upper Payment Limit program gives millions in extra Medicaid payments to qualifying nursing homes. For their status as license owners, the cities stand to get a cut of the extra payments, usually 25 percent.

The Medicare and Medicaid agency last year rejected Oklahoma’s first proposal for the program, and the state re-applied in April. The Oklahoma Health Care Authority is answering a second round of detailed questions from the Centers and hopes to finalize its responses by mid-October, said Health Care Authority spokeswoman Katelynn Burns.

If the plan is approved, an extra $7.7 million in Medicaid funds could go to nursing homes in the current federal fiscal year, with another $18.5 million projected for next year. So far, 19 city-owned nursing homes have applied for the program.

The ownership transfer isn’t based on a city’s buying a nursing-home property and operation for cash. Instead, as defined under legislation in 2016, a city can become the designated license owner, or Upper Payment Limit owner, with the Oklahoma State Department of Health and strike an agreement for management services. (Upper payment limit refers to an extra payment to bring lower Medicaid payments up to the payments offered by Medicare.)

Advocate concerned by ‘widespread patterns of deficiencies’

Critics question the deals, saying the extra money isn’t necessarily earmarked for better patient care or higher salaries to attract and retain nursing home staff. They said the money will likely go to the nursing homes’ managers, most of whom previously held the licenses for the facilities.

Some of the nursing homes that changed ownership have low ratings in the latest federal quality rankings, including seven owned by Pauls Valley that have the lowest possible rating – one star. Those include homes cited for deficiencies after the city took over the license, specifically over fire safety or violating residents’ rights.

Wes Bledsoe, founder of A Perfect Cause, which advocates for better patient care at nursing homes, said nursing home owners have found a way to game the system in order to get higher federal reimbursements. He said the ownership by cities could also be a way to deflect liability if a nursing home is sued by a resident’s family.

“It’s appalling that the City of Pauls Valley, with less than 6,300 residents, can successfully operate 28 nursing homes across the state of Oklahoma,” Bledsoe said. “What possible services and resources do these small towns bring to operate 16 percent of the nursing homes in the state? The monies they receive are for what?

“The numerous widespread patterns of deficiencies in the first few months also raises questions about the management company or owner-operators who are now the contract operators for the City of Pauls Valley.”

For Pauls Valley, the allure of the extra nursing home money is simple: It wants to shore up its financially troubled city-owned hospital.

“We saw it as a way to provide much-needed revenue to the hospital,” said James Frizell, Pauls Valley’s city manager. “The city gets a cut, but again, it goes back into health care. It goes back into our hospital, to help keep our hospital open. They are just kind of under the umbrella of the City of Pauls Valley, but other than that, we do not actually own them.”

Nico Gomez, president and CEO of the Oklahoma Association of Health Care Providers, said the rise of city-owned nursing homes was a consequence of the state’s low Medicaid payment rates to nursing home owners. Similar upper payment limit programs for nursing homes have been approved in states such as Texas, Indiana and Utah, he said. Essentially, the program brings a nursing home’s Medicaid payment up to the level of Medicare, which pays more.

“It’s your low Medicaid payment states that were looking at programs like this (asking), ‘Is that part of the solution to help fund the gap that the state can’t cover?’” Gomez said. “But it is at risk, because you’re actually having to give up your license to somebody else for the purposes of being able to keep your doors open.

“You know, it is an odd program. I don’t think anybody would say it wasn’t really. It’s frustrating that you have to look at stuff like this in order to improve your financial stability, to take care of your senior residents.”

(The Health Care Authority recently voted to increase Medicaid reimbursement rates, including for nursing homes, for the first time in a decade.)

The speed at which cities have taken ownership of nursing homes has surprised state officials and left regulators playing catch-up. In one case, they accidentally issued a license to Hugo that should have gone to Pauls Valley. Most of the ownership transfers came in June 2017, just weeks after an attorney general’s opinion clarified the ownership status of nursing homes in the program.

The attorney general’s opinion, which has the force of law unless it’s overturned by the courts, was requested by former Health Commissioner Terry Cline. He asked the attorney general’s office to give guidance on a nursing home law passed in 2016.

House Bill 2549, by then-Rep. Doug Cox (R-Grove) and Sen. Marty Quinn (R-Claremore), defined the terms of ownership when a city- or county-owned nursing home participates in the Upper Payment Limit program. A companion bill, SB 1149, by then-Sen. AJ Griffin (R-Guthrie) and Cox, allowed cities, counties and hospital districts to own nursing homes outside their boundaries if they participate in the enhanced payment program.

In his opinion, Attorney General Mike Hunter said cities that want to own nursing homes under the program won’t have to go through the lengthy change-of-ownership and certificate-of-need process required of private owners and operators of nursing homes. The state Health Department is in charge of licensing nursing homes.

CMS asks state questions

The cities do have some skin in the game. They will have to put up money, likely from sales tax revenue, in order to attract the extra funding from the federal government. They remit that money, called an intergovernmental transfer, to the Health Care Authority, which then puts it in a pot of money to get the additional federal Medicaid funds.

Hugo would need to put up about $800,000 for eight of its nursing homes that applied for the program, according to information filed with the federal Centers. Pauls Valley would contribute $2.3 million for 10 of its nursing homes. The cities would get back far more than that in supplemental payments if the program is approved.

Meanwhile, federal officials had a 10-page list of questions for the state following its second proposal. Among them were questions over the cities’ expertise and higher management fees for nursing home operations.

“Based on the available information, the city council members and city employees do not appear to have any experience operating nursing facilities. Please explain how the cities will ensure the nursing home residents receive quality care,” the Centers asked in May.

Another question asked if the state could ensure the city’s cut of the payments didn’t go to general city operations. The agency also was curious about the city’s involvement in the quality of care

“Will any of the cities hire additional employees or retain outside consultants to oversee the quality of care at the facilities?” the agency asked.

The Health Care Authority said the detailed list of questions meant it had to consult with numerous stakeholders.

Frizell, the Pauls Valley city manager, said the city’s participation in the Upper Payment Limit program came through its former hospital consultant, which managed the city’s hospital until earlier this year. (The city’s hospital authority and the consultant, NewLight Healthcare LLC, are now embroiled in a federal lawsuit over management fees and delinquent loans.)

Frizell said he wasn’t aware of inspection violations at the homes licensed by the city. One facility, a 25-bed nursing home in Wynnewood, closed in February. It was operated by Ada-based BK Strategies.

“Our impressions are that we do not assume any risk,” Frizell said. “I’m not an attorney and I don’t know how courts operate, so you know for me to sit here and tell you 100 percent there’s no risk, I can’t tell you that. Our contracts are written in such a way that with these nursing homes, they’re the ones at risk and not the city.”

Still uncertain is what happens if federal officials again reject the state’s application for the nursing home Upper Payment Limit program. Will the cities still have the appetite to own the nursing homes when they don’t get a financial cut from higher payments?

“CMS said you have to own the home first and then apply for the program, so it has been a chicken and egg situation for these facilities,” Gomez said.

Oklahoma Watch is a nonprofit, nonpartisan media organization that produces in-depth and investigative content on public-policy issues facing the state. For more Oklahoma Watch content, go to oklahomawatch.org.